Connecting ⚬ the ⚬ Dots ⚬
How Social Networks and Technology can Promote Financial Inclusion
A visitor to Sudan 🇸🇩 observes that people are hard up but immensely hospitable. He asks his hosts how it is that they can afford to be so giving; they reply, “Allah Kareem” (God is generous). Later, speaking to a friend, he says, “The Sudanese are a very lucky people; they have a guy called Allah Kareem who pays for everything.”
It is a story told with a wry smile and little pride at its gentle ribbing of foreigners, its intimation of faith, and the deeper truth that it expresses about the ability of so many Sudanese to survive and thrive in unusually difficult circumstances.
Faith is part of the explanation. Sudanese are generally a religious folk and the belief that there is purpose in adversity surely helps, but there is something else, something altogether more practical, that explains people’s unusual resilience: social networks.
An Uncle in Dubai, a Cousin in London 🇦🇪 🇬🇧
For the anthropologically, inclined Allah Kareem is a person or persons - an uncle in Dubai, a cousin in London, a friend in Riyadh. The global network of family and friends who together manage to send back 3 billion USD per annum the equivalent of 11% of Sudan’s GDP in 2020.
Most of these funds go in support of daily needs, food, utilities, rent, healthcare and education, providing a safety net and a step up to millions of households across the country, helping to relieve extreme poverty [1] providing a source of investment and encouraging entrepreneurship.
It is a system that is only partially served by financial technology. For despite the rapid growth in the remittance industry sending money through official means remains discouragingly expensive, a friction point that in the case of Sudan, is compounded by under developed and eroded financial services.[2]
As a result the vast majority of remittances are sent through informal means, structured around and driven by social networks. Money reaches its destination via private channels, cash carried by a friend returning to Sudan or a transfer via a local businessman looking for foreign currency.
It is a system that came into its own over the last year as Sudan’s capital was plunged into conflict and its already inadequate financial services further disrupted. Around the country, throughout the region, and across the world, networks of mutual aid have sprung up to provide people with relief.
People on the ground for example, set up emergency response rooms to support hospitals and secure food and water supplies. Organised around neighbourhoods, resistance committees, family and friendship networks, they receive most of their money from local and diaspora donations and exemplify the power of social networks to promote inclusion, even in the most dire of circumstances.
Indeed for the first six months of the conflict it was these systems of mutual aid that represented the the main response to the crisis, and although difficult to quantify some would argue they still do.
A Global Phenomenon 🌍
What Sudan illustrates in extremis is a global phenomenon. Last year global remittances stood at 831 billion USD, sent by 200 million migrant workers to 800 million recipients at an average of 200 to 300 USD per month. A near trillion dollars, transferred from 40 rich countries [3] to 125 low and middle income nations [4] with more than half of the value sent going to rural areas.
In our obsession with the things that are plainly visible, controllable, measurable and profitable; governments, corporations, technology, and regulation, we miss the simple fact that our social networks, family, friendship…. human relationships, are the most powerful means by which we can drive inclusion, financial or otherwise.
It is a truth captured in a dozen adages and popular sayings that advise us to “build bridges, not walls” “a problem shared is a problem halved” or “many hands make light work.”
Research confirms what common sense tells us. A standard deviation improvement in social capital increases your chance of finding work by 17%, people with more social connections report receiving 46% more emotional support and 34% more material assistance [5] and disabled workers with more workplace friendships reported 52% higher perceived inclusion.
What applies to jobs, emotional support and perceived inclusion also applies to money. A global study found 51% of adults lend to, or borrow from family & friends and that this informal financial support is especially common among poorer households.
We are at the Beginning 💸
Much is made of the fragmenting effects of technology, its capacity for exclusion and polarisation. But alongside these trends, we are also seeing the beginnings of new and strengthened forms of social connection and inclusion.
Diaspora communities exemplify this. It used to be that living abroad meant a call back home once month or even once a year. Today communication can be daily, and include voice, text, video, silly memes and emojis; videos of nieces and nephews, calls for birthday celebrations and random late night chats, shared sorrow and shared joy.
But sharing information only takes you so far, what people also need to do is exchange, share and collaborate around value, or as we layman refer to it, money. Its great to say “Happy Birthday,” but better still if you can buy your loved one a present. It’s good to get news of grandma’s health, but even better if you can contribute to her healthcare, and in times of crisis sending money quickly and cheaply can literally be the difference between life and death.
Here, technology, lets us down. Relative to the free flow of information, our financial systems are patchy, slow and expensive. Whilst sending a video is painless and low cost, sending money is painful and expensive. The average cost of remitting money in 2023 was 6.20 % of the amount sent, up to 20% to countries in conflict and it is estimated that 1.4 billion people around the world remain unbanked.
Moreover for most people financial services provide only partial coverage of their needs. Whilst financial relationships involve a constant flux of collaboration between family, friends and community, financial services maintain an overwhelming focus on the individual.
Savings groups are the most vivid example of collaborative financial relationships. Around the world hundreds of millions of people, usually family and friends, come together to put money into a shared pot, to save, invest, borrow and loan, helping each other through the good times and bad.
Known as Chitfunds in India, Tandas in Mexico and Chamas in Kenya, they are powerful agents of financial inclusion and it is estimated that over 520 million people participate in them every year, to the tune of over 577 billion USD.
Yet despite their ubiquity they remain chronically underserved by financial technologies that are caught in the paradigm of individual payments, saving and loans.
It no longer need be so.
The Road Ahead: Turbo Charging Social Networks 🚀
The rich ecosystem of collaborative tools afforded by platforms like whatsapp, telegram and gmail offer a glimpse of what is possible. A world where financial technologies are widespread, easy to use, collaborative, fast, low cost and borderless; allowing users to send, save, loan, invest, share and coordinate finances where-ever they are in the world.
Financial technologies that turbo charge social networks by empowering people to support one another, to achieve shared goals and plan for the future, in ways that are both deeply old fashioned and acutely modern.
Imagine the traditional saving group digitised, frictionless, and borderless. Imagine being able to seamlessly save with family to purchase health insurance for parents who live in a different country, or invest in a cross border education fund for family members in different parts of the world. Imagine Sudan’s mutual aid networks but powered by a global financial infrastructure.
The result can be a new and powerful wave of financial inclusion, that goes beyond access to payment wallets and financial products and reaches into a primary driver of inclusion, social networks; with all of their responsiveness, inbuilt knowledge and deep reach.
The technological building blocks are already there. The exponential adoption of smartphones is rapidly putting a networked supercomputer in the hands of pretty much every adult on the planet. Blockchain offers infrastructure that is decentralised, secure and globally accessible and stablecoin's promise fast, low-cost cross-border transfers and savings without the volatility of other cryptocurrencies or the friction of traditional fiat currencies. Easy to use software tools, and an ever growing knowledge base of product design are making it easier to create user experiences that are simple, intuitive and relevant to peoples needs.
There are of course challenges, regulation around blockchain and crypto remains in flux, with governments still hesitating on how to deal with this latest innovation, customers can be skittish about the new technology and on and off ramping can be a problem in many contexts.
None of these problems are unsolvable. All are being tackled by entrepreneurs keen to build new services and governments with a desire to reap the rewards of new technologies.
The prize of success is immense. Not only can we unlock enormous wealth but we can deepen our bonds, creating financial technologies that strengthen families, build communities and empower individuals, contributing to making a fairer and more inclusive world.
[1] “According to a report by the Asian Development Bank a 1% increase in international remittances can reduce poverty severity by 16%.” https://www.adb.org/publications/international-remittances-and-poverty-reduction
[2] The Sudanese financial services sector has long been distorted by the sanctions regime imposed on it by the United States. https://ofac.treasury.gov/sanctions-programs-and-country-information/sudan-and-darfur-sanctions
[3] The top 5 countries that sent the most remittances globally in 2021 were 1. The United States — $71 billion, 2. The United Arab Emirates — $43 billion 3. Saudi Arabia — $35 billion 4. Switzerland — $31 billion 5. Germany — $25 billion. https://www.worldbank.org/en/topic/migrationremittancesdiasporaissues/brief/migration-remittances-data
[4] The top 5 remittance recipients in 2021 were India, Mexico, China, the Philippines, and Egypt. India was the clear leader, receiving over $87 billion. For most countries, remittances form a significant contribution to GDP. https://www.worldbank.org/en/topic/migrationremittancesdiasporaissues/brief/migration-remittances-data
[5] Our new evidence confirms that social capital is strongly linked to subjective well–being through many independent channels and in several different forms. Marriage and family, ties to friends and neighbours, workplace ties, civic engagement (both individually and collectively), trustworthiness and trust: all appear independently and robustly related to happiness and life satisfaction, both directly and through their impact on health. https://royalsocietypublishing.org/doi/10.1098/rstb.2004.1522
